Who Needs Small Cap Mutual Funds? Everyone According to the Experts

The Small-cap mutual stocks are seeking the attention of every investment expert, is this statement true that Small Cap Mutual Funds provides high potential returns. Don’t wait for anyone’s approval, check out by yourself. Is this fund suited for your investment portfolio?

In this article, let’s delve into this fund and get every answer that you want to know, stay active till the end to know about the best small cap mutual fund in India. Be the first one to know about everything about this fund.

What is the Real Definition of Small Cap Mutual Fund?

The small-cap schemes are investing in the small companies those companies which are new and starting up in the market. But the twist is these companies have the potential to boost in the future. This stands below 250 as the market capitalization rank.

What exactly it offers is high potential growth, diversification, and growth opportunities. It will also offer high risk, but to reduce this risk you can make an investment for long-term duration and build wealth.

The small-cap has a great history of outperforming the large-cap fund, so if you ever have a chance to invest in growing companies, invest now because it has the potential to become mid cap company as soon as the market boom.

Key Features of Small Cap Mutual Fund

• Potential for High Growth: The reason why experts considered a small cap fund is the high potential return it offers for the long term. This fund has a lot of room to grow and give compared to the large-cap fund, the small-cap scheme is capable of outperforming even the large cap fund. just strive this fund into your portfolio for better returns.
• The Diversification Benefits: The small cap mutual fund is capable of reducing risk by diversifying its portfolio into various asset classes to generate phenomenal returns for your desired goal.
• Give Access to Emerging Companies:  This fund has begun the idea of growth, the growth of innovation, and emerging sectors, this fund has the power to grow start-up companies and create great wealth. Small companies have grown immensely even in a highly volatile market.
• Consult the Expert: The expert knows the market more than a beginner, they have an expertise of years working in this mutual fund industry. The master of mutual funds can give you an idea of the best fund and give you clarity.  

Is Small Cap Mutual Fund Meant for You?

The small cap fund is suited for investors who want high-potential returns, and for those who are okay with high risks:

• Growth Oriented Investors: Those seeking large capital appreciation and those who are willing to take higher volatility, if you are okay with these two then is fund is meant for you.
• Long term Investors: Those who want long term investment duration, because long-term small cap mutual funds give the benefit of high potential returns, but will be more volatile for the short term.
• Diversification: For an investor who wants to diversify their portfolio, and wants to reduce the risk of their investment portfolio, the small cap has a well-rounded investment strategy.
• Retirement Saver: Small-cap mutual funds can be a valuable component of a retirement portfolio, they will provide high potential growth companies and help them to build wealth over time.

Are Small Cap Mutual Fund Carries Risk?

A Small cap mutual funds can be considered as high risk portfolios compared to the large and mid cap funds:

• Higher volatility: In the mutual fund market the highest volatility is considered a small cap fund, their stock price can experience high volatility and fluctuations which lead these funds to be riskier.
• Lower liquidity: The small cap has generally lower trading volume which leads to its low diversification in the market. This can make it more difficult to buy and sell at the desired price of the portfolio.
• High risk of failure: this fund has everything in high which can offer higher volatility, high risk, greater return, and even the loss is also high. If you want a high return, then you have to take some level of risk.
• Less Diversification: Small cap mutual funds may have a more concentrated portfolio compared to large-cap funds. This can amplify the impact of individual stock performance on the overall fund returns.
• Less Information: There may be less publicly available information and research coverage for small cap companies, making it more challenging for investors to assess their prospects and risks.

However, it’s important to note that small cap mutual funds can also offer potential benefits, such as higher growth opportunities and diversification within a portfolio. Investors should carefully consider their risk tolerance, investment horizon, and overall financial goals before investing in small cap mutual funds.

Can You Invest Through SIP in Small Cap Mutual Fund?

The right answer is yes you can invest through a systematic investment plan in small cap mutual fund, let’s understand this in detail:

What is an SIP?

Systematic investing is a method of investing a fixed amount of money regularly like, monthly, yearly, and every quarterly. Instead of investing one big amount, you can break it into smaller amount. This small amount you can invest every month easily.

Why Invest in Small Cap Fund Through SIP?

Small cap mutual funds invest in smaller companies that carry higher risk in the market, but it has the potential to generate higher returns, they also offer the chance to make significant returns. Investing through SIP (systematic investment plan) helps you manage risks better. Here’s how:

• Affordable Investment: With an SIP, you don’t need a large sum of money to start. You can invest a small amount regularly, making it more affordable.
• Cost Averaging: SIPs spread your investment across different market conditions. Sometimes, you buy shares at a lower price and other times at a higher price. Over time, this helps average out the cost of your investment.
• Discipline: SIPs encourage a disciplined approach to saving and investing. Regular investments help you build your portfolio steadily without needing to time the market.

Which is the Best Small Cap Fund in India?

1. Axis Small Cap fund

Through a diversified portfolio consisting mostly of equities and equity-related securities of small size firms, the plan aims to provide long-term capital appreciation. This fund, which has 23,772 crores in assets under management (AUM) as of November 29, 2013, was introduced.

2. BANDHAN Small Cap Fund

The remarkable asset under management, valued at Rs. 7,534 crores, was first presented to investors on February 25, 2020. Through its primary investments in small-cap stocks and equity-linked instruments, the Scheme aims to provide long-term financial appreciation.

3. ITI Small Cap Fund

With a massive AUM of Rs. ₹2,355 Cr., this fund was introduced on February 17, 2020. Investments in small-cap firms’ stock and equity-related instruments are the Scheme’s primary means of generating capital appreciation.

4. Invesco India Small Cap Fund

This fund was launched on October 30, 2018, and as of August 31, 2024, it has an amazing AUM of Rs. 5,093 Cr. The program invests mostly in equities of small cap firms in an effort to produce financial appreciation.

5. SBI Small Cap Fund

As of August 31, 2024, this fund, which was established on January 1, 2013, has an amazing AUM of Rs. ₹33,069 Cr. The primary investment vehicle of the scheme is a well-diversified basket of small-cap equities stocks, with the goal of offering investors both the liquidity of an open-ended scheme and prospects for long-term capital improvement.

Conclusion

To sum up, investments seeking to capitalize on the rapid expansion of start-up enterprises might find a special chance with small cap mutual funds. In contrast to big and mid-cap funds, these funds are more volatile and have higher risk, but growth-oriented and long-term investors are drawn to them because of the possibility of huge returns. By enabling consistent, low-cost contributions that gradually average out the cost, investing in small cap funds through a Systematic Investment Plan (SIP) can help reduce some of the risks. Nevertheless, before including small cap funds in their portfolio, investors must evaluate their risk appetite and investment horizon. Investors might profit from the small-cap market by making well-informed decisions and utilizing the knowledge of financial advisers specializing in small-cap investment, promising growth these funds can offer.